Federal officials are ordering a community bank and national mortgage lender to investigate and take corrective action over alleged misconduct that targeted Department of Veterans Affairs borrowers. 

In a consent order filed in early April, the Office of the Comptroller of the Currency accused The Federal Savings Bank, a Chicago-based depository institution specializing in mortgage lending, of false or misleading disclosures about its VA products on numerous occasions. 

Between 2022 and 2024, deceptive marketing led some homeowners to refinance their loans, unaware they were taking out new costlier mortgages, according to OCC officials. 

"The bank's deceptive statements induced consumers to obtain VA cash-out refinance loans, which resulted in certain consumers paying significant origination fees and receiving refinanced mortgage loans with significantly increased interest rates and monthly payments," the order said. 

The infractions ran afoul of section five within the Federal Trade Commission Act prohibiting "unfair or deceptive acts or practices," OCC said. Among the alleged violations The Federal Savings Bank regularly committed were product misrepresentations hiding the nature of the loans and marketing that offered lower rates and favorable terms borrowers would not see. The OCC also claims the following:

• Bank employees suggested to consumers the institution had a "special relationship" with the Department of Veterans Affairs. 

• Millions of deceptive advertisements were sent to consumers stating they had funds available to them and directed them to contact The Federal Savings Bank. The ads disguised the fact they were actually solicitations for VA cash-out refis that required applying for a new mortgage loan.  

• Some bank employees led customers to believe the interest rate or payments on their cash-out loan would decrease, failing to disclose the mortgages were fixed or explain they might not qualify for future refinancing. 

In addition to ceasing the misconduct, the community bank agreed to hire a third-party consultant to identify all impacted borrowers within 90 days per terms of the order. The bank will then be required to submit to the OCC sixty days later a formal restitution plan that determines the appropriate amount to compensate each customer and a timeline for implementation.  The agreement to settle the charges via consent order represented neither admission nor denial of the allegations. No response to a request for comment sent to The Federal Savings Bank had been received prior to article publication.

Mortgage volumes at The Federal Savings Bank

During the three-year period covered by the consent order, the bank originated $10.8 billion worth of loans covering 30,361 transactions, according to an IEmergent analysis of Home Mortgage Disclosure Act data. Of that volume, VA-backed originations accounted for a significant portion approaching $5.2 billion for 13,591 units.

In 2025, originations at the bank totaled almost $3.1 billion, with VA mortgages comprising $1.7 billion worth of volume. 

Along with two Chicago-area retail branches, The Federal Savings Bank offers mortgage services in dedicated lending offices located in 14 states.    

The allegations against The Federal Savings Bank bear some resemblance to charges currently in front of another prominent VA lender, Veterans United Home Loans. In a potential class action suit currently under litigation in federal court, plaintiffs similarly claimed the lender engaged in practices that suggested it held direct ties to the Department of Veterans Affairs, and that it steered clients to costly loans. 

Veterans United this week filed a motion to dismiss the claims.